The Outsourced Accountant: How Virtual Accounting Can Transform Your Law Firm

Welcome to Accountants LawPod, where accounting professionals and law firms converge, hosted by Lynda Artesani, Sarah Prevost, and Steven Libhart.

Welcome back, everyone. Steve, it's you and I today. Lynda has an appointment because it's season for her in Florida right now.

Well, we'll miss her today. How are you, Sarah?

We'll miss her today. I'm doing well. How about you?

Good, good. It's, it's— we were talking before the recording started how warm it is right now. We're recording this in the middle— well, not even the middle of February, and it's going to be 70 degrees here today. I just can't believe it.

I know, it's crazy.

Yeah, sit in the sun for a while.

Ah, get some vitamin D in you.

Yeah, no kidding. Golly, I'm— I, I really want some snow. We need some. We're gonna have a terrible drought here this summer. You can just feel it coming. But yeah, but it's pretty. It's, you know, I love Colorado. We have all kinds of different weather here. We could still get slammed in March, April, May, you know.

Oh, I know. We were just talking about that off camera.

Talking about it.

Yeah. Yeah. So, well, today we have a really actually a great topic that's kind of close to our hearts because we serve in this area, which is outsourced accounting, um, what an outsourced accountant looks like. how it can transform working with a law firm. And I know that from both of our sides, we've had experience and trusted clients that we work with, and we can see— it's exciting for us to see the changes that we bring to the table.

But the value we bring to these people, and when they're so grateful for it, because we're behind the scenes, we're not in the heated environment of the office with all the different things going on, and we're focused on the work. And that's what we do for them. And, you know, they're— I They're always so grateful for it. And—

Well, it's a trusted space because we— a lot of business owners, especially law firms, the last thing you want is people in the firm to know your business quite that— at that level.

No, that's a good point. Yeah.

Yeah. So it's a trusted space. It's an honorable space. We treat it like that. And then we have that outside perspective and that advisement that we can support and see from our angle because we see so many different firms. We understand what is happening in specifically law firms, businesses as a whole. But I don't know, Steve, what do you feel like you bring to the table when you're— from your perspective, when you're, you know, newly engaging, or maybe you're that longstanding confidant with partners?

You know, you hit the You hit the nail on the head with the experience we bring. And, you know, we, we work with so many different law firms at any given time that our combined experience from all those firms allows us to become more of a trusted advisor with a specific firm when we're talking to them or sending them information or what have you. You know, we bring all that experience in and we can, you know, we're not going to share their information, obviously, but we can say— I've seen other firms do it this way. In my experience, this is what— this is how we were able to change this at another firm, you know. And they, they really do seem to tune in on that because they, they're like, oh, wait a minute, I didn't think about that. You know, this guy is, is, is looking at a lot of different ways to do this one, one procedure, if you will.

Yeah, well, I've— we've said this in the past, I think we'll continue saying it. From the outside, every firm looks the same. Internally, how you work, how you decide to slice and dice the workflow, all of those things are very intimate to the firm itself.

Yeah. Even if they're all the same type of law firm, you know, they— that doesn't mean they all do it the same way.

Yeah. And I, um, what's interesting too is we're in a day and age where virtual is part of every firm in some aspect. We have firms that have You have business in multiple states too. That's also another thing that goes on.

Right.

And then the other thing too is leaning into streamlining services, making things a bit easier so that the people that do work for you are doing the better half of the work, not getting waylaid with the pieces that— we see this all the time— paralegals that you're the top paralegal or you're really good at this segment and then you get Thrusted into doing the accounting. Is that best served with your skill set? Should you be, you know?

So— It's not. And you end up frustrating long term. You end up frustrating that paralegal because that's not what they went to school for. That's not what they have a passion for, you know. And just, just pushing off the books to somebody like that quite often is, is a recipe for lots of cleanup coming on down the line because, you know, that person is going to rush through the work. They're just going to, you know, get the entries in there just to get the entries in there. And they may not have the experience and generally don't have the experience to understand what types of transactions should go into what types of accounts and what questions to ask. And quite often they're afraid to even ask it.

I think you're kind of hitting on those common financial moments where you you're starting to learn how to outsource, but you don't know how to ask the questions, which is totally like all of us. I wouldn't know how to ask the questions of a certain segment of a business that I'm like, well, I don't know how that works. But I think what you're saying too, Steve, is when you look at that first piece of outsourcing, it's also probably looking— I mean, you tell me, you're looking at yourself as far as like, what work are you doing? that you really need to delegate off because it's not serving you as the owner of the firm.

Correct.

Well, really, I mean—

Correct. That age-old question of what is your hourly rate and, you know, how much— boy, we, we see this so often, you know, when, when we're doing consultation calls and the very first question they have is, how much do you charge? And that's that first red flag for me. It's like, well, wait, we've got to unpack what you do first. To understand. And so I'm going to push that question back to you. How much are you charging per hour? What do you average per hour? And can you continue to do that and, and pay for outsourced accounting? And the answer is yes. You know, you can grow your business, you can feel safe growing, and you can trust somebody else to get your back with all the numbers.

Okay, so I just had a thought when you were saying that. So my thought is It's the same thing. You would call up a lawyer and, like, immediately, here's all the problems I have. How much do you charge? Really, are you supposed to know that?

Right?

How long the case will take? All of the parameters? The general sense of it? You don't.

You don't.

The complexity of that. And it's the same thing for us. We would want the same respect back. Right? And I think you just Said it very well. We also see we can take a look, and the first thing I'm not going to do is say you did all of this wrong, but we could take a look and already assess from the financials where you actually might have workflow issues.

Absolutely.

Based on the numbers, right? Like, I'm sure you can do it very well, Steve, having worked inside a firm and then knowing what needs to happen.

Well, and if they say, you know, no, I'm just I'm just shopping right now. I don't want to show you my books. And then I cut it off right there. It's like, well, I don't think I can help you.

Yeah.

Because if you're not going to let us look at the books and see what you have for us to start with, I can't tell you how much this is going to cost. And, you know, that's not giving it— I'm on the lawyer's side now. That's not giving yourself a fair chance to even outsource the books and see what a dynamic set of information you can get from that. It's like you're cheating yourself.

Yeah. So some of the other things are like when you look at outsourcing the accounting aspect, when you look at having someone in-house, and I'm not saying that you can't have both depending on the size of the firm, you probably do need both. But sometimes with having the outside, obviously you don't— you're having a neutral party. You're having someone with more transparency because we have to work to that higher level transparency. And some of the other benefits are— what else, Steve? Like, what are some of the other things that you can think that—

Well, it's not diluted. It's, it's focused because we're not in the office. We're not there with all the distractions and the, oh, let's let accounting take care of this because they're at the end of the line. You know, just shoving the case through, getting it done, and then accounting has to clean it all up. That's not what accounting is. That's billing. And quite often they'll throw the billing in on top of the accounting. And depending on the size of the firm, that can be really deadly.

That is so true.

You know, so, but that's the biggest one is number one, it's focus. Number two, the cost of it. You know, you're not— when you outsource accounting, you're not paying for employment taxes, unemployment, health insurance, 401, all those things. You know, you can, especially when you're a smaller firm or you're new, to it. You know, you can save all those costs. You can bill your work out and focus on being an attorney, and you can let accounting focus on being accounting in-house. Just again, depending on the size of the firm, how often— I, I, you know, I've worked in enough firms— how often do you see the accountant working on nights and weekends just so they can focus on their work because they're packed to death all day long in the office? True.

I mean, it happens in our own firms, but that's for our problem.

That's our problem.

Yeah. So true. Well, and then I believe that the presentation of it is, especially if you're outsourcing the billing as part of it or co-outsource the billing, right? So in-house happens and then out, and then we're following up and/or we're doing all these things. It's a professional firm doing this on your behalf. It looks different, you know, you depending on the size of the firm you are, it has a different cadence to it. And it's— I feel like what we've delivered as a group is a more streamlined value. Like you said, it's less distracted, it's more value input, and we're very narrow niched into that space.

Let's talk about the elephant in the room, trust accounting. That's where we really excel as outsourced accounting people for law firms. Um, and that's where the law firm has that extra layer of security, knowing that we're— and I love to use this word with trust accounting— we're laser-focused on looking at your trust accounts and telling you what we see and telling you, giving you guidance when something happens that shouldn't happen, you know, and getting it cleaned up and keeping it in compliance. That's huge.

Yeah, yeah. Well, when you have that Like, I guess you could say third layer or additional layer of oversight. So you put all the numbers together. Let's just say you're a PI firm. You put all the numbers together.

Pretty simple.

Yeah, as, you know, time of settlement, and now it's time to pay out. And, you know, if you have your Excel sheet or you have something else, like, things don't come quite the way they should, or you've been misinformed, like A check was written and you thought it wasn't written, so you reprint the check, and then now you've overdrawn the account. Now you have somebody else coming through and double-checking that work. That's just part of the accounting method. That's just part of the whole thing, and it's being presented to you. You can now see— you can see what's not cleared. You can see what's in transit. You have all this extra piece that, yes, you, you would have that whether you had someone in-house or not, but you have this actual third party doing that work where what are hap— what's happening in an audit, what's happening in a compliance review, it's a third—

I'm glad you brought that up because I've experienced situations where in a personal injury firm they get that settlement and, you know, the emotions of getting that settlement, even for the attorney, is, oh boy, I'm going to look really good with the client. I'm going to shove this money out the door. Now, an in-house person May not, for lack of better words, stand up to that attorney and say, no, wait a minute, put the brakes on, we've got to do all the accounting on this first. There might be Medicare settlements, there might be something from an expert witness that hasn't been billed and paid out correctly yet. There's a lot of different things that can happen. We, as the outside people, if we're involved in that process, if they trust us with that, can say, whoa, stop. And they'll listen to us more than they'll listen to their in-house people. I've experienced this many, many times. And later on they're like, thank you so much for making us stop and put the brakes on. And I'll counsel and say, just talk to your client and say, you know, all of these transactions have got to clear first. All of these things have to be taken care of. We've got to even make sure that the check is going to clear the bank. You know, these settlements are huge generally.

Yeah, well, and the other thing too is I've seen this before. We've been interacting with clients who are based in one state, and then we find out that they have jurisdiction in another state by other things. But those bar rules dictate certain pieces. And so we'll ask the question, and a lot of times it's just like, well, I wasn't aware of it to be quite at that level. You have to look into it at a further level depending on what type of law you're practicing. So going back to the compliance, What needs to happen? Are things going in the right cadence? All of these pieces. And we have that, I don't know, bird's-eye view of saying, okay, we've seen it. We know what the structure looks like. We know what's required. We'll do the extra homework because that's part of our work.

Absolutely.

And that's what you're saying is like, it's part of our work to make sure your checks are settling, your disbursements are happening in the right way. So Yeah, there's, there's like a whole, a whole thing behind. So one thing I have— let me ask you this question— is when you're— when a firm is looking to outsource to an accounting professional and you do the cleanup, you get through the year, and it's now we're at this season moment where you're turning stuff over for taxes, and the question comes up, where did all my money go? What do you— you know, it comes. What— so what are your— where are your kind of areas of expertise? Where are your tips or tricks that you like to hone in on when you're looking at that?

Oh my gosh, that's such a good question. You know, the cash flow. What a lot of times the money that is not just right in front of their face is because of— I'll use profit sharing or 401 contributions. That flow from year to year in the regular course of business. You know, they're paying out their profit sharing in the next year, usually in the first quarter of the next year. That cash is coming— that cash is coming out of your bank account, but it affects the prior year.

Mm-hmm.

You know, the journal entry is done for the prior year to reflect that transaction, but the money's coming out this year, and that always hangs people up. Um, that's true. Liabilities, you know, the cost receivables, you know, all those sorts of that, the, you know, there's all the assets of the cost receivables and what's not collectible there. And, you know, all those things come into play that cause that confusion between the P&L and the balance sheet and the cash flow. Where did my money go?

Where, when you say liabilities too, is when you're looking at, it's so easy to look at the profit and the expenses, right? But what about all— yeah, you had to use credit card. Credit card has a balance, so cash isn't equivalent to what's on the profit and expense area, right? Um, so you need to pay attention to what you're paying over here, like you said, those liabilities, which for— honestly, for law firm owners and for different, uh, junior kind of accountants, it's hard to understand how to have those conversations.

Yes.

Right? Like, and then of course, what about the equity section? Absolutely.

The equity section, guaranteed payments. Um, yeah, bills that you have paid last year, but for some reason the— let's say you send out checks or you use a bill pay system that sends out checks. Um, those haven't cleared by the end of the year, but so there you need to take that into consideration. A lot of people miss that. You know, though, you've still got all this money outstanding out there that's going to clear this year, but you, you paid it last year. So, um, but, you know, I kind of end that conversation with them by proving that assets, liabilities, and equity all equal and balance out, and that all of the reports tie out on the other side for the P&L and any cost reports or anything like that. Um, and once you prove those numbers out and you explain some of the reasons why The cash went the direction it did. They usually have the confidence that, number one, you know what you're talking about, and number two, that they're safe, for lack of better words.

Yeah. The other thing too, I feel like what we do as well, Steve, and I mean, I myself have done this, so I'll speak to this a little bit too, is when you're looking at weighing options of like, how much are you spending in maybe dues, how much Are you spending on healthcare? What are the other options that are out there? Having a second person to speak to like ourselves who can just say, in our experience, we've seen other firms do X, or in our experience, my own firm, we had to do XYZ. And I think just having that sounding board of conversation, it's nice to have when you have it with colleagues, but at a certain point You're not having these deep, meaningful conversations with a colleague about really how much you're bringing in and how much that those conversations don't always happen.

Right.

There's some privacy to that. So I think we put ourselves in a position that, and it's an honorable one to be able to have that conversation with you and help guide you through that as a sounding board. It's your decision as a business. Like you said, if you're gonna do profit share, you're gonna do profit share. But looking at through the lens of the numbers, where do we project out? Where are we seeing ourselves right now? What have historically we've been doing? And then moving those decisions into a space that's a trusted area. For me, I will say this, a lot of times if you're going to at least tell me you're looking at bringing somebody on board and/or what level of—

Involve us in that process.

Yeah, we can look at the numbers. We can say, okay, Based on what we know, this is how much— this is how much your payroll is now. This is how much your projected payroll will be. This is how much cash we need to plan on, on top of just the— just this core, the rent, the utilities, whatever else that happens with that. And in my kind of biggest thing coming out of this past few years, of all the heartache and all the things that we've lived through these since 2020 and forward is really looking at how much do I need to have on hand cash-wise to allow myself that runway. Things are—

Absolutely. Things are changing. Yeah.

Yeah.

Well, so many law firms that, you know, November, December, they're like, we've got to spend all the money that's in the bank so we can reduce our— oh, you know where I'm going with that— so we can reduce our tax liability. It's like, dude, slow down. You know, you've got in the first quarter, you've got estimated taxes, let's say, that, that are going to be due Um, you've got a payroll that's due. You're— you, you have taxes that will come out from the end of the year. Payrolls will come out in the early part of January. And, you know, all the different things that happen, and they get caught with their pants down quite often because all of a sudden they don't have any money and they spent it all in the prior year. And then they cry, and it's like, you've got to pay attention to all these things. And, and to your point, we're happy to help you develop the idea of what those numbers mean and how to get To a safe place with them. And having a, you know, a double, to your point, a savings account and budgeting a certain amount to go into that every month is huge.

Which goes back to the question is, how much is this going to cost? Is it really? Is that something I'm really going to tell you right on the fly? Respectfully, because I feel like what happens in the transformation of working with an outside firm like ourselves and others is you begin to have a change of growth mindset. You either decide that I'm going to sustain, this is sustainable, or you kind of project out what other changes are because you start to fundamentally understand what your firm numbers are doing.

Right.

What are the fine-tuning tweaks that can happen just purely in dialogue, in conversation, or you learn about someone's life. Oh, I'm going to get married this year, or things are going to change, you know. Okay, well, that changes your mindset of how your firm is going to run. We see it all the time. So—

Well, we can help them with statistics too, and KPIs, key performance indicators, you know. Um, as an example, one common mistake that a lot of small firms make when they first start out, a lot of solos, is they will just dump all kinds of money into marketing, Google Ads, all kinds of things, and then they wonder why they don't have any cash. And it's like, well, let's focus Yeah. How much you're spending on marketing. Let's focus how much you're spending on SEO and those sorts of things, because that can eat you alive really fast and you don't get results from every bucket that you threw that money into. So while that's a scary thing, the busy bus does not pull up and people jump off and run through the door to, to use your services. You've got to be really focused on your target market. Where it's going and what the percentage is. What should a— and since I'm using this example, what percentage should marketing be of gross revenue, of net revenue? Well, you know, whatever.

Yeah. Well, it's like our friend Danielle that we met with. She had that beautiful, simplistic look and such a value to me in my brain is a third, a third, a third. That makes sense. You take that P&L and you're like, okay, This is where all these buckets are, and you, and you have the balance sheet inside of this. And that's an episode we had a bit earlier this year, but it's so simple and it's so obtainable. But how do you even start there if you're muddled into doing the work? You're, you're part of billing, you're part of the approving of all the bills, you're part of all of these things. What really needs to happen is kind of a realignment of some of these key tasks.

Mm-hmm.

So that when we are having conversations with you, it's truly understood where we're at with financials in a way that's meaningful to you. And that's the thing. I think that's the key piece to business in general. It doesn't click in your brain. It's not supposed to click like that for everybody right on the nose.

Good point.

Some people have it naturally, right? Like you just go in and you can tinker and tweak. Okay, good on you. But also, Business is humans. We're human beings. It's not just, oh, if you do this, you do— I see this, like, I forgot his name, one of these people that came from ashes to the wealth, right? And he's like, well, it's this. And what's this revenue number?

What's this?

And what's that? Okay, yeah, that's great. That's good information. But are you ready to digest it? Are you ready to fine-tune it? Just like you're saying, Steve, are you ready to look at those key metrics and understand what that marketing number should be for you? What—

well, if you've— if you've got it in your head that you're going to look for a bookkeeper at $200 a month, that's what you're going to get. And, you know, 10 months down the line, you're going to go, what do I have here? Or are you going to look for somebody who really does focus on your business, on your numbers, with the experience they have working with other law firms and their tenure in the industry? And pay what it's worth to help you grow your business and make it secure financially. That's the key things that make a difference with outsourcing.

Or to your point, modernize it so that you can sell it. If you're looking to get out—

Whoa, whoa, whoa, whoa, wait a minute.

Really? Well, you're looking at your numbers. You're looking at your point. You're, you're— are you going to have growth? Are you gonna have, you know what I mean? Like, sure, you really gotta look at it through a different lens. And that's what you're making is really kind of honoring that. Are you gonna have growth? Are you gonna exit? Are you gonna merge? We see a lot of mergers that are so—

You know, your merge, your merge, you will attract, you'll attract a much stronger partnership if you've got good numbers and you understand them.

Also, if you're modernized, you've got good workflows and Is this really a good merger?

Right.

Because we see it all the time. And it's— I'm like, wait, hold on, timeout. Did this really make sense?

I've— in the years I've been doing this, I've seen attorneys travel from firm to firm to firm to firm. And it's kind of interesting. I'll, you know, I'll discover somebody who's over at XYZ firm and I'm like, oh, okay, they're over there now, you know? And it's like, sit tight. Focus on your business. Yeah, you know, feel a little bit of pain, learn, absorb, you know, just like, you know, I think about this with people who— you wouldn't go to a podiatrist for your heart condition. You would, you know, you think about that, you know, it's, it's the same thing with attorneys. I mean, if you're going to be an attorney, a brand new attorney, Focus on, you know, what's your niche. You don't have to serve everybody because that, that can be a fatal mistake, you know. And they get the same phone calls from people. Well, how much are you going to charge me for my DUI defense? Because they see a billboard or they hear something on the radio. And, you know, you're talking about the big game players there who can crank out 500 DUIs in a month or whatever, you know, with their firm full of attorneys and paralegals. They can afford to do that type of model, but you can't. As a smaller firm, even a mid-sized firm, 3 or 4 attorneys. So, you know, what is your market? Who is your market? What is your niche? To your point, you use this word a couple of times today, the workflow. That's huge. You get that down and boy.

Mm-hmm. It is. And, and I know our tools, I see it all the time. Well, you, you've got AI in the tools, so it'll do X, Y, and Z. Okay, well, let's be honest about do you even have a workflow that could meet whatever X, Y, and Z is going to do for you? And is it really going to do what it says it's going to do? I'm not saying it wouldn't, but are you in a position to be there?

Right.

To adopt it the right way. So these are all the things that I think we're, we're so used to seeing, um, on the financial side and on the accounting side. It goes so far beyond bookkeeping. So I don't know. This was quite the lively conversation. I have a passion for it. Of course.

I do too. I do too. I really do. And I hope if you're listening to this or watching it that you've got some good takeaways for yourself from this. And we're always available out here to help walk you through some of these things. So yes, definitely been a good conversation.

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Kara, that was beautiful.

Thank you. Thank you for that. Well, Steve, I hope your week— we're in the middle of season. We have a lot going on. I know we're closing up books. We're, like you said, doing tax estimate stuff with people and all kinds of things.

So I hope you're passing it off to the tax preparers, and that always feels good.

For sure.

Thank you, everybody.